7/23 and 5/25 Mortgages: Mortgages with a one-time rate
adjustment after seven years and five years, respectively.
3/1, 5/1, 7/1 and 10/1 ARMs:
Adjustable-rate mortgages in which the rate is fixed for
three-year, five-year, seven-year and 10-year periods,
respectively, but may adjust annually after that.
Acceleration: The right of the mortgagee (lender)
to demand the immediate repayment of the mortgage loan balance upon
the default of the mortgager (borrower), or by using the right
vested in the due-on-sale clause.
Adjustable-Rate Mortgage (ARM): A loan on which
the monthly payments will increase or decrease over time, based on
changes in the ARM?s interest rate index. ARM payments typically
are adjusted every six months or once a year. Common indices to
which ARMs are tied include the 11th District Cost of Funds,
one-year T-note and six-month T-bill.
Adjusted Basis: The cost of a property plus the
value of any capital expenditure for improvements to the property
minus any depreciation taken.
Adjustment Date: The date that the interest rate
changes on an adjustable-rate mortgage.
Adjustment Interval: The interval between changes
on an adjustable-rate mortgage in the interest rate and/or monthly
payment; typically one, three or five years depending on the index.
Adjustment Period: The period elapsing between
adjustment dates for an adjustable-rate mortgage.
Affordability Analysis: An analysis of a buyer?s
ability to afford the purchase of a home. Reviews income,
liabilities and available funds. Considers the type of mortgage you
plan to use, the area where you want to purchase a home and the
probable closing costs. Amortization: The gradual repayment of a mortgage
through monthly (e.g. installment) payments. In the early years of
a mortgage, most of the monthly payment goes toward interest. Later
in the mortgage, more of the payment goes toward reducing the
loan?s principal balance.
Amortization Term: The length of time required to
amortize the mortgage loan expressed as a number of months. For
example, 360 months is the amortization term for a 30-year
fixed-rate mortgage. Annual Percentage Rate (APR): The annual cost of a
mortgage, including interest, loan fees and other costs, stated as
a percentage of the loan amount. Appraisal/Appraised Value: An opinion of the
market value of a home expressed by a real estate appraiser. Arbitration: The term used to describe a form of
dispute resolution that occurs outside of the court system, usually
by private agreement between parties. Basically, arbitration is a
dispute resolution system where the parties submit arguments and
evidence to a neutral person, known as the arbitrator, who then
renders a decision, called an award, based upon the evidence and
Assessment: A local tax levied against a property
for a specific community purpose, such as a sewer or
streetlights. Assignment: The transfer of a contractual interest
or obligation from one person to another such as, but not limited
to, a transfer of a mortgage obligation. Assignment is a legal term
used to transfer interest from one contract to another.
Assumable Mortgage: An assumable mortgage can be
transferred from the seller to the new buyer. Generally requires a
credit review of the new borrower and lenders may charge a fee for
the assumption. If a mortgage contains a due-on-sale clause, a new
buyer may not assume the mortgage.
Assumption: The agreement between buyer and seller
where the buyer takes over the payments on an existing mortgage
from the seller. Assuming a loan can usually save the buyer money
by acquiring an existing mortgage debt, instead of obtaining a new
mortgage where closing costs and market-rate interest charges will
Assumption Fee: The fee paid to a lender (usually
by the purchaser of real property) when an assumption takes place.
Balloon Mortgage: A loan that is amortized for a
longer period than the term of the loan. Usually this refers to a
30-year amortization and a five-year term. At the end of the term
of the loan, the remaining outstanding principal on the loan is
Balloon Payment: The final lump sum paid at the
maturity date of a balloon mortgage.
Biweekly Payment Mortgage: A plan to make mortgage
payments every two weeks (instead of the standard monthly payment
schedule). The 26 (or 27) biweekly payments are each equal to
one-half of the monthly payment required if the loan were a
standard 30-year fixed-rate mortgage. The result for the borrower
is a substantial saving in interest.
Blanket Mortgage: A mortgage covering at least two
pieces of real estate as security for the same mortgage.
Borrower(Mortgager): One who
applies for and receives a loan in the form of a mortgage with the
intention of repaying the loan in full.
Bridge Loan: A second trust for which the
borrower?s present home is collateral, allowing the proceeds to be
used to close on a new house before the present home is sold. Also
known as a "swing loan."
Broker: An individual who assists with arranging
funding or negotiating contracts for a client but who does not loan
the money himself or herself. Brokers usually charge a fee or
receive a commission for their services.
Buy-down: When the lender and/or the homebuilder
subsidize a mortgage by lowering the interest rate during the first
few years of the loan. While the payments are initially low, they
will increase when the subsidy expires.
C Caps: Provisions of an
adjustable-rate mortgage limiting how much the interest rate can
change at each adjustment period (e.g., every six months, once a
year) or over the life of the loan (rate cap). A payment cap limits
how much the payment due on the loan can increase or decrease.
Cash Flow: The amount of cash derived over a
certain period of time from an income-producing property. The cash
flow should be large enough to pay the expenses of the
income-producing property (mortgage payment, maintenance,
Certificate of Eligibility: The document given to
qualified veterans entitling them to VA-guaranteed loans for homes,
businesses and mobile homes. Certificates of eligibility may be
obtained by sending form DD-214 (Separation Paper) to the local
Veterans Affairs office with VA form 1880 (request for Certificate
Certificate of Reasonable Value(CRV): An appraisal issued by Veterans Affairs
showing the property?s current market value.
Certificate of Veteran Status: The document given
to veterans or reservists who have served 90 days of continuous
active duty (including training time). It may be obtained by
sending DD 214 to the local Veterans Affairs office with form
26-8261a (request for certificate of veteran status; this document
enables veterans to obtain lower downpayments on certain
Change Frequency: The frequency (in months) of
payment and/or interest rate changes on an adjustable-rate
Closing: The meeting at which a home sale is
finalized. The buyer signs the mortgage, pays closing costs and
receives title to the home. The seller pays closing costs and
receives the net proceeds from the home sale.
Closing Costs: Expenses in addition to the price
of the home incurred by buyers and sellers when a home is sold.
Common closing costs include escrow fees, title insurance fees,
document recording fees and real estate commissions.
COFI: An adjustable-rate mortgage with a rate that
adjusts based on a cost-of-funds index, often the 11th District
Cost of Funds.
Construction Loan: A short-term interim loan to
pay for the construction of buildings or homes. These are usually
designed to provide periodic disbursements to the builder as he or
Consumer Reporting Agency (or Bureau): An
organization that handles the preparation of reports used by
lenders to determine a potential borrower?s credit history. The
agency gets data for these reports from a credit repository and
Contingency: A condition that must be fulfilled
before a contract is binding.
Contract Sale or Deed: A contract between
purchaser and seller of real estate to convey title after certain
conditions have been met. It is a form of installment sale.
Conventional Mortgage: A loan not guaranteed,
insured or made by the federal or state government.
Conversion Clause: A provision in an
adjustable-rate mortgage allowing the loan to be converted to a
fixed-rate mortgage at some point during the term. Usually
conversion is allowed at the end of the first adjustment period.
The conversion feature may cost extra.
Counteroffer: An offer in response to an original
Credit Report: A report documenting the credit
history and current status of a borrower?s credit standing.
Credit Risk Score: A credit risk score is a
statistical summary of the information contained in a consumer?s
credit report. The most well-known type of credit risk score is the
Fair, Isaac or FICO score. This form of credit scoring is a
mathematical summary calculation that assigns numerical values to
various pieces of information in the credit report. The overall
credit risk score is highly relative in the credit underwriting
process for a mortgage loan.
Default: Failure to meet legal obligations in a
contract, specifically, failure to make the monthly payments on a
Deferred Interest: When a mortgage is written with
a monthly payment that is less than required to satisfy the note
rate, the unpaid interest is deferred by adding it to the loan
Delinquency: Failure to make payments on time.
This can lead to foreclosure.
Department of Veterans Affairs(VA): An independent agency of the federal
government that guarantees long-term, low- or no-downpayment
mortgages to eligible veterans.
Debt-To-Income (DTI) Ratio:The ratio of monthly
debt payments to monthly gross income. Lenders use a housing DTI
ratio (house payment divided by monthly income) and a total DTI
ratio (total debt payments including the house payment divided by
monthly income) to determine whether a borrower?s income qualifies
him or her for a mortgage.
Deed: A legal document conveying ownership of
Downpayment: The portion of the home?s purchase
price the buyer pays in cash.
Due-on-Sale-Clause: A provision in a mortgage or
deed of trust that allows the lender to demand immediate payment of
the balance of the mortgage if the mortgage holder sells the home.
Earnest Money: The deposit given by a buyer to a
seller to show that the buyer is serious about purchasing the home.
Earnest money usually is refundable to homebuyers in the event a
contingency of the sales contract cannot be met.
Entitlement: The Veterans Affairs home loan
benefit (i.e., entitlement for a VA-guaranteed home loan). This is
also known as eligibility.
Equal Credit Opportunity Act(ECOA): A federal law requiring lenders and other
creditors to make credit equally available without discrimination
based on race, color, religion, national origin, age, sex, marital
status, or receipt of income from public assistance programs.
Equity: The difference between a home?s value and
the mortgage amount owed on the home. Escrow: The holding of documents and money by a
neutral third party prior to closing.
Escrow Disbursements: The use of escrow funds to
pay real estate taxes, hazard insurance, mortgage insurance and
other property expenses as they become due.
Escrow Payment: The part of a mortgager?s monthly
payment that is held by the servicer to pay for taxes, hazard
insurance, mortgage insurance, lease payments and other items as
they become due.
Exclusive Right to Sell Listing: A contract giving
an agent the exclusive right to market a property under a certain
Exclusive Agency Listing: A contract giving the
broker the right to market an owner?s property for a certain period
of time, but also allowing the owner to sell the property during
that period without paying a commission.
Farmers Home Administration(FmHA): Provides financing to farmers and other
qualified borrowers who are unable to obtain loans elsewhere.
Federal Housing Administration(FHA): A division of the Department of Housing and
Urban Development whose main activity is insuring residential
mortgage loans made by private lenders. FHA also sets standards for
Federal National Mortgage Association (Fannie
Mae): A privately owned corporation created by Congress
that purchases and sells conventional residential mortgages as well
as those insured by Federal Housing Administration or guaranteed by
Veterans Affairs. This institution, which provides funds for one in
seven mortgages, makes mortgage money more available and more
affordable. Fannie Mae and Freddie Mac are the key secondary
FHA Loan: A loan insured by the Federal Housing
Administration open to all qualified home purchasers. While there
are limits to the size of FHA loans, they are generous enough to
handle moderately priced homes almost anywhere in the country.
FHA Mortgage Insurance: Requires a fee (up to 2.25
percent of the loan amount) paid at closing to insure the loan with
FHA. In addition, FHA mortgage insurance requires an annual fee of
up to 0.5 percent of the current loan amount, paid in monthly
installments. The lower the downpayment, the more years the fee
must be paid.
Firm Commitment: A promise by Federal Housing
Administration to insure a mortgage loan for a specified property
and borrower. A promise from a lender to make a mortgage loan.
First Mortgage: The primary lien against a
property. Fixed Installment: The monthly payment due on a
mortgage loan, including payment of both principal and interest.
Fixed-Rate Mortgage (FRM): A loan on which the
interest rate and monthly payment do not change.
For Sale By Owner (FSBO): The owner sells his or
her home without a REALTOR® to avoid paying a sales commission.
Foreclosure: A legal process by which the lender
or the seller forces a sale of a mortgaged property because the
borrower has not met the terms of the mortgage. Also known as a
repossession of property. Federal Home Loan Mortgage Corporation (Freddie
Mac): A quasi-governmental, privately owned agency that
purchases conventional mortgage from insured depository
institutions and HUD-approved mortgage bankers.
Fannie Mae and
Freddie Mac are the key
secondary mortgage-market agencies
Fully Amortized ARM: An adjustable-rate mortgage
(ARM) with a monthly payment that is sufficient to amortize the
remaining balance, at the interest accrual rate, over the
A type of flexible-payment mortgage where the payments increase for
a specified period of time and then level off. This type of
mortgage has negative amortization built into it.
Growing-Equity Mortgage (GEM): A fixed-rate
mortgage that provides scheduled payment increases over an
established period of time. The increased amount of the monthly
payment is applied directly toward reducing the remaining balance
of the mortgage.
Guaranty: A promise by one party to pay a debt or
perform an obligation contracted by another if the original party
fails to pay or perform according to a contract.
Guarantee Mortgage: A mortgage that is guaranteed
by a third party.
Hazard Insurance: A form of insurance in which the
insurance company protects the insured from specified losses, such
as fire, windstorm and the like.
Homeowner?s Warranty: A policy that covers certain
repairs (e.g. plumbing or heating) of a newly purchased home for a
certain period of time.
Housing Expenses-to-Income Ratio: The ratio,
expressed as a percentage, which results when a borrower?s housing
expenses are divided by his or her gross monthly income.
HUD-1 statement: A document that
provides an itemized listing of the funds that are payable at
closing. Items that appear on the statement include real estate
commissions, loan fees, points and initial escrow amounts. A
separate number within a standardized numbering system represents
each item on the statement. The totals at the bottom of the HUD-1
statement define the seller?s net proceeds and the buyer?s net
payment at closing.
Impound Account: An account established by a
lender to collect a borrower?s property tax and insurance payments.
Impound accounts are normally required on mortgages with down
payments of 10 percent or less.
Index: A published interest rate
against which lenders measure the difference between the current
interest rate on an adjustable rate mortgage and that earned by
other investments (such as one-, three- and five-year U.S. Treasury
security yields, the monthly average interest rate on loans closed
by savings and loan institutions, and the monthly average
costs-of-funds incurred by savings and loans), which is then used
to adjust the interest rate on an adjustable mortgage up or down.
Indexed rate: The sum of the
published index plus the margin. For example if the index were 9
percent and the margin 2.75 percent, the indexed rate would be
11.75 percent. Often, lenders charge less than the indexed rate the
first year of an adjustable-rate mortgage.
Initial Interest Rate: This refers to the original
interest rate of the mortgage at the time of closing. This rate
changes for an adjustable-rate mortgage (ARM). It?s also known as
"start rate" or "teaser."
Installment: The regular periodic payment that a
borrower agrees to make to a lender.
Insured Mortgage: A mortgage that is protected by
the Federal Housing Administration (FHA) or by private mortgage
Interest: The fee charged for borrowing money.
Interest Accrual Rate: The percentage rate at
which interest accrues on the mortgage. In most cases, it is also
the rate used to calculate the monthly payments.
Interest Rate Buydown Plan: An arrangement that
allows the property seller to deposit money to an account. That
money is then released each month to reduce the mortgagor?s monthly
payments during the early years of a mortgage.
Interest Rate Ceiling: For an adjustable-rate
mortgage, the maximum interest rate as specified in the mortgage
Interest Rate Floor: For an adjustable-rate
mortgage, the minimum interest rate as specified in the mortgage
Interim Financing: A construction loan made during
completion of a building or a project. A permanent loan usually
replaces this loan after completion.
Investor: A money source for a lender.
Lease-Purchase Mortgage Loan: An alternative
financing option that allows low- and moderate-income homebuyers to
lease a home with an option to buy. Each month?s rent payment
consists of principal, interest, taxes and insurance (PITI)
payments on the first mortgage plus an extra amount that
accumulates in a savings account for a downpayment.
Liabilities: A person?s financial obligations.
Liabilities include long-term and short-term debt.
Lien: A claim upon a piece of property for the
payment or satisfaction of a debt or obligation.
Lifetime Payment Cap: For an adjustable-rate
mortgage, a limit on the amount that payments can increase or
decrease over the life of the mortgage.
Lifetime Rate Cap: For an adjustable-rate
mortgage, a limit on the amount that the interest rate can increase
or decrease over the life of the loan.
Listing: A property placed on the market by a
Loan: A sum of borrowed money (principal) that is
generally repaid with interest.
Loan-to-Value (LTV) Ratio: The ratio of the amount
of money owed on a home to the home?s value. The LTV ratio for a
$100,000 home financed with a $90,000 mortgage would be 90 percent,
Lock: Lender?s guarantee that the mortgage rate
quoted will be good for a specific number of days from day of
Margin: The amount a lender adds to the index on
an adjustable-rate mortgage to establish the adjusted interest
Market Value: The highest price that a buyer would
pay and the lowest price a seller would accept on a property.
Market value may be different from the price a property could
actually be sold for at a given time.
Maturity: The date on which the principal balance
of a loan becomes due and payable.
Mediation: A process used to resolve disputes. In
mediation, the parties to the dispute are assisted by a neutral
third person called a mediator. The mediator is not empowered to
impose a settlement or decision on the parties; rather, the
mediator facilitates discussions and negotiation between the
parties with the goal of assisting the parties in reaching a
mutually acceptable settlement of their dispute.
MIP (Mortgage Insurance Premium): Insurance from
FHA to the lender against incurring a loss on account of the
Monthly Fixed Installment: That portion of the
total monthly payment that is applied toward principal and
interest. When a mortgage negatively amortizes, the monthly fixed
installment does not include any amount for principal reduction and
doesn?t cover all of the interest. The loan balance therefore
increases instead of decreasing.
Mortgage: A legal document that pledges a property
to the lender as security for payment of a debt.
Mortgage Banker: A company that originates
mortgages for sale into the secondary mortgage market (e.g., Fannie
Mae and Freddie Mac).
Mortgage Broker: An individual or company that
arranges mortgage financing between a borrower and a lender.
Mortgagee: The lender.
Mortgage Insurance: Money paid to insure the
mortgage when the down payment is less than 20 percent.
Mortgage Life Insurance: A type of term life
insurance specifying that in the event that the borrower dies while
the policy is in force, the debt is automatically paid by insurance
Mortgage Interest Deduction: The ability of
mortgage borrowers to deduct the interest paid on a home loan for
purposes of federal and state income taxes.
Mortgager: The borrower or homeowner.
Multiple Listings Service (MLS): The service
combines the listings for all available homes in an area, except
for For-Sale-By-Owner properties, in one directory or database.
Negative Amortization: Occurs when monthly
payments are not large enough to pay all the interest due on the
loan. This unpaid interest is added to the unpaid balance of the
loan. The danger of negative amortization is that the homebuyer
ends up owing more than the original amount of the loan.
Net Effective Income: The borrower?s gross income
minus federal income tax.
Net Listing: A listing agreement in which the
broker?s commission consists of the amount above a net price set by
the owner. If the net price is not met, a commission is not earned.
Non-assumption Clause: A statement in a mortgage
contract forbidding the assumption of the mortgage without the
prior approval of the lender.
Note: A legal document that obligates a borrower
to repay a mortgage loan at a stated interest rate during a
specified period of time.
One-year Adjustable: Mortgage whose annual rate
changes yearly. The rate is usually based on movements of a
published index plus a specified margin chosen by the lender.
Open Listing: A property marketed by more than one
agent at a time.
Origination Fee: A fee charged by a lender for
making a mortgage.
Owner Financing: A property purchase transaction
in which the party selling the property provides all or part of the
Payment Change Date: The date when a new monthly
payment amount takes effect on an adjustable-rate mortgage or a
graduated-payment mortgage. Generally, the payment change date
occurs in the month immediately after the adjustment date.
Periodic Payment Cap: A limit on the amount that
payments can increase or decrease during any one adjustment period.
Periodic Rate Cap: A limit on the amount that the
interest rate can increase or decrease during any one adjustment
period, regardless of how high or low the index might be.
Permanent Loan: A long-term mortgage, usually 10
years or more. Also called an "end loan."
PITI: Principal, interest, taxes and insurance --
the primary components of a monthly mortgage payment.
Money is placed in a pledged savings account and this fund plus
earned interest is gradually used to reduce mortgage payments.
Points: One point equals 1 percent of the mortgage
amount. Points are charged by lenders to increase the lender?s
return on the mortgage. Typically, lenders may charge anywhere from
zero to two points. Loan points are tax-deductible. Power of Attorney: A legal document authorizing
one person to act on behalf of another. Pre-approval: The process of determining how much
money you will be eligible to borrow before you apply for a loan.
Prepaid Expenses: Necessary to create an escrow
account or to adjust the seller?s existing escrow account. Can
include taxes, hazard insurance, private mortgage insurance and
Prepayment: A privilege in a mortgage permitting
the borrower to make payments in advance of their due date.
Prepayment Penalty: Money charged for an early
repayment of debt. Prepayment penalties are allowed in some form
(but not necessarily imposed) in many states.
Primary Mortgage Market: Lenders, such as
savings-and-loan associations, commercial banks and mortgage
companies, who make mortgage loans directly to borrowers. These
lenders sometimes sell their mortgages to the secondary mortgage
Principal: The loan amount borrowed or still
owed. Private Mortgage Insurance (PMI): Insurance issued
by private insurers that protects lenders against a loss if a
borrower defaults on a mortgage with a low downpayment (e.g., less
than 20 percent).
Q Qualifying Ratios: Calculations used to determine
if a borrower can qualify for a mortgage. They consist of two
separate calculations: a housing expense as a percent of income
ratio and total debt obligations as a percent of income
R Rate Lock: A commitment issued by a lender to a
borrower or other mortgage originator guaranteeing a specified
interest rate and lender costs for a specified period of
time. Real Estate Settlement Procedures Act (RESPA): A
consumer protection law that requires lenders to give borrowers
advance notice of closing costs. RESPA is a federal law that, among
other things, allows consumers to review information on known or
estimated settlement cost after application and prior to or at
settlement. The law requires lenders to furnish the information
after application only. REALTOR®: A real estate broker or agent who, as a
member of a local association of REALTORS®, a state association of
REALTORS® and the NATIONAL ASSOCIATION OF REALTORS® (link to
www.onerealtorplace.com), adheres to high standards of
professionalism and a strict code of ethics. Recission: The cancellation of a contract by
putting all parties back to the position before they entered the
contract. In some mortgage financing situations involving equity in
the home as security, the law gives the homeowner three days to
cancel a contract. Recording Fees: Money paid to the lender for
recording a home sale with the local authorities, thereby making it
part of the public records.
Refinance: Obtaining a new mortgage loan on a
property already owned. Often to replace existing loans on the
Renegotiable Rate Mortgage: A loan in which the
interest rate is adjusted periodically.
Reverse Annuity Mortgage(RAM): A
form of mortgage in which the lender makes periodic payments to the
borrower using the borrower?s equity in the home as collateral for
and repayment of the loan.
Revolving Liability: A credit arrangement, such as
a credit card, that allows a customer to borrow against a
pre-approved line of credit when purchasing goods and services.
Satisfaction of Mortgage: The document issued by
the mortgagee when the mortgage loan is paid in full. Also called a
"release of mortgage."
Second Mortgage: A mortgage made subsequent to
another mortgage and subordinate to the first one.
Secondary Mortgage Market: The place where primary
mortgage lenders sell the mortgages they make to obtain more funds
to originate more new loans. It provides liquidity for the lenders.
Security: The property that will be pledged as
collateral for a loan.
Seller Carry-back: An agreement in which the
seller provides financing, often in combination with an assumable
mortgage. Seller Financing: A financing agreement in which a
seller provides part (or all) of the financing needed by a buyer to
purchase the seller?s home. Servicer: An organization that collects principal
and interest payments from borrowers and manages borrowers? escrow
accounts. The servicer often services mortgages that have been
purchased by an investor in the secondary mortgage market.
Servicing: All the steps and operations a lender
performs to keep a loan in good standing, such as collection of
payments, payment of taxes, insurance, property inspections and the
Shared-Appreciation Mortgage(SAM): A mortgage in which a borrower receives a
below-market interest rate in return for which the lender (or
another investor such as a family member or other partner) receives
a portion of the future appreciation in the value of the property.
May also apply to a mortgage where the borrower shares the monthly
principal and interest payments with another party in exchange for
part of the appreciation.
Simple Interest: Interest that is computed only on
the principle balance.
Standard Payment Calculation: The method used to
determine the monthly payment required to repay the remaining
balance of a mortgage in substantially equal installments over the
remaining term of the mortgage at the current interest rate.
Step-Rate Mortgage: A mortgage that allows for the
interest rate to increase according to a specified schedule (i.e.,
seven years), resulting in increased payments as well. At the end
of the specified period, the rate and payments will remain constant
for the remainder of the loan.
Survey: A measurement of land, prepared by a
registered land surveyor, showing the location of the land with
reference to known points, its dimensions, and the location and
dimensions of any buildings.
Sweat Equity: Equity created by a purchaser
performing work on a property being purchased.
Third-Party Origination: When a lender uses
another party to completely or partially originate, process,
underwrite, close, fund or package the mortgages it plans to
deliver to the secondary mortgage market.
Title: A legal concept relating to ownership of
Title Insurance: Insurance to protect the buyer
and lender against losses arising from disputes over the ownership
of a property.
Title Search: An examination of public records to
determine the legal ownership of property. Usually the records are
recorded with the County Recorders office. The search is usually
performed by a title company using computerized records.
Total Expense Ratio: Total obligations as a
percentage of gross monthly income including monthly housing
expenses plus other monthly debts.
Truth In Lending Act: A federal law requiring
disclosure of the annual percentage rate to homebuyers shortly
after they apply for the loan. Also known as Regulation Z.
Two-Step Mortgage: A mortgage in which the
borrower receives a below-market interest rate for a specified
number of years (most often seven or 10), and then receives a new
interest rate adjusted (within certain limits) to market conditions
at that time. The lender sometimes has the option to call the loan
due with 30 days notice at the end of seven or 10 years.
Underwriting: The process of evaluating a loan
application to determine if it meets the lender?s standards.
Usury: Interest charged in excess of the legal
rate established by law.
VA Loan: A long-term, low- or no-downpayment loan
guaranteed by the Department of Veterans Affairs. Restricted to
individuals qualified by military service or other entitlements.
VA Mortgage Funding Fee: A premium of up to 1.5
percent (depending on the size of the downpayment) paid on a
VA-backed loan. On a $75,000 fixed-rate mortgage with no down
payment, this would amount to $1,406 either paid at closing or
added to the amount financed.
Verification of Deposit(VOD): A
document signed by the borrower?s financial institution verifying
the status and balance of that person?s financial accounts.
Warehouse Fee: Many mortgage firms must borrow
funds on a short-term basis in order to originate loans that are to
be sold later in the secondary mortgage market or to investors.
When the prime rate of interest is higher on short-term loans than
on mortgage loans, the mortgage firm has an economic loss that is
offset by charging a warehouse fee.
Wraparound Mortgage: Results when an existing
assumable loan is combined with a new loan, resulting in an
interest rate somewhere between the old rate and the current market
rate. The payments are made to a second lender or the previous
homeowner, who then forwards the payments to the first lender after
taking the additional amount off the top.